Mortgage demand in the United States has been in near-constant flux since the US Federal Reserve began raising interest rates in early 2022 to fight off inflation. Now, new reports emerging that demand has yet again dropped off due to rate hikes.
Mortgage demand rates fell again last week, as interest rates continued to rise. According to a recent CNBC article, the Mortgage Bankers Association (MBA) reported that its seasonally adjusted index of mortgage applications decreased 6.7% for the week ending August 5th. This was the sixth consecutive week of decline and the lowest level of mortgage demand since January 2021.
The MBA said that the current decline in mortgage demand was driven by rising interest rates. The average interest rate for a 30-year fixed-rate mortgage rose to 5.81% last week, up from 5.45% a week earlier. This is the highest level of interest rates since 2009. Rising interest rates are making it more expensive to buy a home, and this is discouraging some potential homebuyers from entering the market. The MBA's survey found that the share of mortgage applications made by first-time homebuyers fell to 29.1% last week, the lowest level since April 2020.
The decline in mortgage demand is also being felt by the housing market. Home sales have slowed in recent months, and prices are starting to come down. In the same CNBC article, the National Association of Realtors reported that existing home sales fell 2.7% in June from a year earlier. This was the third consecutive month of declining sales, indicating that this trend is holding steady and is likely to do so in the immediate future.
This isn’t exactly welcoming news for real estate professionals, as the housing market is still facing a number of challenges. These challenges include not just rising interest rates and high home prices but also a limited supply of homes for sale. However, the decline in mortgage demand is a sign that the market is starting to cool off. This could help to ease some of the affordability challenges that have been facing homebuyers in recent months. While the current environment is making it more difficult for some people to buy a home. Something that could lead to a slowdown in home sales and a decline in home prices in the coming months, it is still too early to say what impact the rising interest rates will have on the housing market in the long term.
Real estate markets are, of course, incredibly sensitive to even minute changes in related fields. Here are some additional factors that could impact mortgage demand in the coming months:
It is important to note that the housing market is a complex system, and there are many factors that can impact demand. The factors listed above are just a few of the things to watch for in the coming months. Be prepared for what’s coming and you won’t be taken by surprise!